1. Field of the Invention
The present invention relates to systems and methods for managing the workflow, distribution, and marketplace for syndicated loans.
2. Discussion of the Related Art
A wide variety of commercial debt and loan structures common in corporate financing. While corporate bonds and traditional commercial loans are among the common mechanisms used by institutions to borrow money, there is also a need for a type of loan to finance large debt. In particular, when institutions need to borrow a principal amount that is well in excess of the amount any single bank or lender would be willing to lend, borrowers turn to syndicated loans to raise funds.
The process by which a syndicated loan is formed is illustrated in FIG. 1A. A syndicated loan is a large-scale loan structured and placed by a financial institution, often a bank or experienced credit institution that is referred to as the “lead arranger” or “designated agent” for the loan. The lead arranger organizes a syndicate of financial entities to participate in the financing under terms and conditions set forth in a negotiated contract. Because the syndicate is formed of a groups of lenders each lending a portion of the total principal, the syndicated loan relies very heavily on pre-existing relationships between banks and the issuer. Based on these relationships, the borrowers who are often large and medium-sized companies, business groups and major national construction and real estate projects that require a large amount of credit financed over a long term, are able to access far greater credit than would otherwise be possible.
There are two kinds of syndicated loans. However, because the loans are negotiated between borrowers, issuers, and the syndicate banks, there is a great deal of variation among different syndicated loans beyond their simple categorization.
The first category of syndicated loans is “Direct Syndicated Loans”. In the Direct Syndicated Loan, all members of the banking syndicate appoint a correspondent bank that disburses, recovers, and manages the loan. International syndicated loans are mostly direct loans because they are often easier to manage.
The second category of syndicated loans is “Indirect Loans”. Here, the lead arranger makes a loan to the borrower, and then sells portions of the loan to other banks. The loan is managed, disbursed and recovered by the lead arranger. Moreover, at the lead arranger's discretion and in accordance with the terms and conditions of the loan, the lead arranger may sell equal portions of the loan at a single price (wherein price reflects term, interest rate, and other factors), or it may break the loan up into pieces according to the amount that purchasers are willing to commit.
Because syndicated loans are aggressively negotiated during their creation, they typically have flexible terms, ranging anywhere from three years to twenty years and beyond. The loan term comprise three periods, namely the available period, the grace period, and the repayment period.
The price of a syndicated loan is made up of both the interest rate and a number of fees. The interest rate may be a fixed or variable interest rate. The fees may include a commitment fee, management fee, agent fee, arrangement fee and miscellaneous fees.
The commitment fee reflects the fact that the bank is committed to providing the remaining portion of the loan, and thus endures losses of interest. The management fee is paid because the lead arranger incurs the costs of organizing the syndicate, drafting documents and negotiating with the borrower. This fee is usually paid within 30 days of signing the loan agreement.
The participant fee is shared among the members of the syndicate according to each member's share of the loan. The agency fee is paid by the borrower to the lead arranger for its management of the loan, interest calculation and loan disbursement. In addition, other miscellaneous fees may be paid to cover expenses incurred when the lead arranger organizes the syndicate by inviting prospective banks to join. These fees can also include printing fees and attorney fees.
The process of forming the syndicate is often very complex, time consuming, and inefficient. When the buyer applies for a syndicated loan to a bank, the bank conducts initial investigation performs a market assessment, and if it finds the project viable, it issues an opinion, or recommendation, regarding the syndicated loan to the borrower. After the borrower accepts the syndicated loan recommendation, it authorizes the lead bank to arrange the syndicate. The borrower must provide the bank with any required documentation, such as shareholder registration documents and financial statements as appropriate.
The lead arranger prints the formal loan document, invites lenders to join the syndicate, and after all participating banks confirm the modified loan document, the borrower will receive the lead arrangers invitation to sign the syndicated loan agreement.
Based on this it is clear that the success of a syndicated loan arrangement depends on tapping existing relationships between banks, but also that the process can be inefficient. In particular, because there is an irregular pipeline of syndicated loans in the debt market, and because there is no clear way to identify relationships between banks unless they are known in advance, it is very difficult for prospective members of the syndicate to determine whether they wish to be part of a particular syndicate or to compare open syndicated loans to one another.